Is your tax department more strategic or tactical?

How do you gauge the operational maturity (the overall effectiveness and efficiency) of a tax group? For a couple of years now, BDO has explored one aspect of this question by looking at the level of input that tax leaders contribute to strategic decision-making across the business. BDO distinguishes between ‘Tax Strategists’ and ‘Tax Tacticians’.  

Tax Strategists provide consistent guidance in strategic conversations, shaping business direction with their insights. Tax Tacticians have a more limited role, focusing on specific technical aspects. For example, a strategist might advise on the tax implications of entering a new market, influencing overall strategy, while a tactician ensures compliance with tax regulations, addressing immediate requirements without affecting broader decisions. 

A BDO study offers some soul-searching questions to help you pin down your operational tax maturity:    

• Do tax leaders have a seat at the table? While tax has always been complicated, its complexity is increasing at an exponential rate. Input from tax leaders is vital for decision-making in a range of key areas, including geographic expansion; workforce strategy; and environmental, social and governance (ESG) strategy and execution. Tax also should be part of enterprise resource planning (ERP) implementation teams to ensure that tax automation needs are understood and addressed during upgrades and cloud migrations. 
• Is the tax team sufficiently resourced? Building the right tax team is critical for raising tax’s strategic profile, but tax leaders should also take steps to define and understand how non-tax roles (e.g. managers in accounts payable, procurement and other tax-relevant processes) contribute to tax goals. They should regularly conduct skill assessments and training to address gaps and update staffers on tax issues and changes in legislation. They may want to leverage outsourcing, co-sourcing or external tax guidance to supplement internal resources. 
• Have you re-evaluated your transfer pricing position? Global tax authorities are increasing their scrutiny of transfer pricing practices. Tax organisations should establish and maintain formal transfer pricing policies and monitoring procedures to cover changes in business operations, regulatory updates and new corporate structures. Seventy-one percent of tax execs overall say that transfer pricing audit activity will present a challenge to their organisation in the next 12 months. 
• How accurate and efficient are your compliance and reporting processes? Mature tax organisations have policies and controls in place to reduce the risk of non-compliance. They also rely on technology to automate compliance with these requirements accurately and consistently. Organisations that combine tax technology with effective data management will be well positioned to maximise the value of AI. Sixty-eight percent of Tax Strategists currently deploy tax compliance software, compared with just over half of Tax Tacticians.  
• Have you achieved ‘total tax transparency’? Tax Strategists can help the business meet heightened regulatory and shareholder demands for more transparency into total tax contributions, while aligning with sustainability and ESG goals. 

Not all tax leaders emphasise their strategic roles, BDO concludes. However, those who do can help the business better understand and navigate risk scenarios and prepare for the future.